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The Importance of Accurate Contract Management for Collecting Underpayments

Lake Charles Memorial Uses Hospital Contract Management To Collect $1.3 Million In Underpayments


  • Location: Lake Charles, LA
  • Number of Beds: 365
  • HIS System: Paragon/McKesson
  • "Often times, denials follow trends and variance patterns, which are identified and pinpointed within PMMC Contract PRO to allow staff to better manage the appeal process with the specific payer."


The Challenge

Lake Charles Memorial Hospital, part of the Lake Charles Memorial Healthcare System, was struggling to manage the criteria and details of their commercial payer contracts within their contract management system.

“It came down to accuracy for us,” explains Pansy Gabbard, Director of Revenue Management. “We just weren’t getting down into the level of detail that we needed given the complexity of our commercial payer contracts.”

One of the unique factors at play is their geographic location. Because they are located in the state of Louisiana, they have a unique bundling methodology that does not follow the National Correct Coding Initiative (NCCI) edits. According to CMS, the National Correct Coding Initiative (NCCI) was developed to promote national correct coding methodologies and to control improper coding leading to inappropriate payment in Part B claims.

“PMMC Contract PRO achieved a 95% accuracy rate on reimbursements for that specific bundling methodology, which was really impressive,” said John Allen, Managed Care Coordinator.

Lake Charles Memorial also needed a contract management system with the flexibility to build out unique insurance plans. For example, a specific group of patients are often referred to Lake Charles Memorial from local government entities who qualify for special Medicare rates. Because their rates are defined based on a pre-negotiated contract, the contract management system needed to be used as a ‘re-pricing’ tool for this group.


The Solution

Pansy Gabbard, Director of Revenue Management, has a staff that manages the underpayment process from third party payers within PMMC Contract PRO. Ms. Gabbard works directly with several supervisors, one of which is on the commercial payer side and is fully dedicated to tracking a ‘work list’ of underpayments on a daily basis within the contract management system.

Lake Charles Memorial also uses the contract management system to monitor denials that are then followed up on by internal staff. Denial management has become a higher priority for hospitals today, as it presents another opportunity for collecting on lost reimbursements.

Often times, denials follow trends and variance patterns, which are identified and pinpointed within PMMC Contract PRO to allow staff to better manage the appeal process with the specific payer.

The Results

Through the use of the contract management system in 2014, Lake Charles collected over $880,000 in combined underpayments and denials.

In the month of January 2015 alone, Lake Charles Memorial identified one commercial payer that underpaid their reimbursements by $470,000, according to the contract. This allowed the collections team to recoup those otherwise lost dollars. Even as Lake Charles Memorial collects on underpaid accounts, the frequency and dollar amount are somewhat unpredictable.Lake_Charles_Memorial_Contract_Management_Benefits.png

“We don’t always know what we’re going to find, but when we do, recovering underpayments are an added boost to the bottom line,” explains Ms. Gabbard.

In addition, the solution has been quick to respond to industry updates. For example:

Federal sequestration – As of April 1, 2013, Medicare provider payments were cut across the board by 2 percent under the Budget Control Act of 2011. These adjustments were built into PMMC CONTRACT PRO within the year. The Congressional Budget Office (CBO) estimates that Medicare budgetary reductions will total $123 billion from 2013 to 2021.

ICD-10 coding changes – As of October 1, 2015, CMS will require the transition to ICD-10 coding procedures. According to CMS, ICD-10 will affect diagnosis and inpatient procedure coding for everyone covered by the Health Insurance Portability and Accountability Act (HIPAA), not just those who submit Medicare or Medicaid claims. The change to ICD-10 does not affect CPT coding for outpatient procedures. As healthcare providers prepare, PMMC Contract PRO is prepared to handle these critical changes. “PMMC will provide the ability to import ICD-10 codes and descriptions into the software master tables and identify those codes as ICD-10,” said Stephen Summers, AVP Contract Management at PMMC. “Modifications have also been made to accommodate contracts that rely on Diagnosis and/or Procedure codes for reimbursements.”